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TAXES

Spain eyes €80 flat fee for self-employed which will save low earners €900

The Spanish government has proposed raising the monthly flat fee new ‘autónomos’ initially pay from €60 to €80, a rise which will purportedly mean lower earners end up saving more than €900 in social security payments over two years.

Published: 8 July 2022 11:08 CEST
spain self employed flat fee
Self-employed people in Spain currently pay the highest monthly social security fees in the EU. (Stock Photo by Prakash MATHEMA / AFP)

Spain’s Social Security Ministry is in the process of negotiating its new fees and tax rates for the country’s 3.3 million self-employed workers (known as autónomos), changes which are likely to come into force in 2023. 

The proposed amendments have been tweaked on several occasions over the course of 2022 but are still generally unpopular, as the new tax bracket rates are likely to be beneficial for lower earners but bad news for higher earners.

Their latest proposal relating to autónomos’ social security payments is heading in the same direction.

It would see the monthly €60 minimum contribution base (in reality it’s €69 in 2022 although not widely publicised) that autonónomos currently pay in the first year after they register with the RETA system increase up to €80. 

As things stand, this €60 flat fee that gives self-employed workers access to Spain’s social security system (including public health) rises progressively over the second year until reaching a monthly fee of €294. This is on top of the tax paid on income. 

The new tarifa plana would be adapted to so-called real earnings (ingresos reales), however.

According to the ministry, new autónomos will be able to save €916 on their social security payments during their first two years of self-employment.

But this is only if over the course of their second year of work their net income is below Spain’s Interprofessional Minimum Wage (SMI), which in 2022 is €1,166.67 a month over 12 months.

New self-employed workers who meet that criteria would pay a flat fee of €80 over a 24-month period, rather than seeing their rate increase progressively over the second year up to €294 as is currently the case.

In other words, they would pay €1,920 in social security payments over two years rather than the current €2,836 it adds up to now, representing €916 of savings.

For autonónomos whose earnings are above the minimum wage during the second year, the new €80 flat fee will apply for the first year but during the second year they will have to pay more.

According to several Spanish sources specialising in self-employed work in the country, unions and social agents representing autónomos have all but agreed with the ministry headed by José Luis Escrivá that these changes will go ahead.

So it appears that this will be a positive measure for self-starters who are struggling to get their businesses in Spain off the ground over the first two years, but nothing to write home about for those who have found relative success.

Many self-employed workers in Spain have long felt they are burdened with unfair tax and social security contributions.

The initial flat fee was already raised by €50 to €60 in 2019, and in 2022 the minimum contribution base for the more seasoned self-employed was also increased from €286 a month to €294. 

How does Spain’s social security payment system for self-employed workers compare to other European countries?

Self-employed people in Spain pay the highest monthly social security fees in the EU. 

In France, freelancers do not pay anything the first year and from the second, the fees vary depending on how much you earn and the sector you work in.

In Germany, a self-employed worker with a monthly income of less than €1,700 pays nothing.

In the UK, national insurance contributions start at £3.05 a week, or £158.60 a year.

In Italy, there is no fixed monthly fee. Self-employed workers only pay income tax based on their income.

Despite having the most expensive social security payments in Europe, it should be noted that autónomos in Spain do get more for what they pay. For example, they receive benefits such as sick pay and maternity and paternity pay, unlike in countries such as the UK.

READ ALSO – Self-employed in Spain: What you should know about being ‘autónomo’

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TAXES

How wealthy people in Spain are avoiding the millionaire tax

It may come as no surprise that the Spanish government has collected far less money than expected from the millionaire tax, as wealthy people have found several ways to avoid paying it.

Published: 16 April 2024 09:40 CEST
How wealthy people in Spain are avoiding the millionaire tax

Spain’s temporary tax on the super rich (impuesto de solidaridad a las grandes fortunas) is usually referred to as the millionaire’s tax or solidarity tax. It’s a tax on people worth more than €3 million and it’s not a tax on income, but rather on assets and holdings.

It was introduced by the country’s left-wing coalition in an attempt to help Spaniards weather the economic storm of the cost-of-living crisis. But as of September 2023, around a year after the tax measure was first brought in, the Spanish government reported that it had raised €623 million in revenue, a decent amount but considerably less than the initial projection of €1.5 billion. We now may know why that is.

According to tax data, the millionaire’s tax targeted just 12,010 payers, which represents barely 0.1 percent of the total taxpayer base in Spain.

On average these high-worth individuals each paid €52,000, which is complementary to the Wealth Tax (impuesto patrimonio).

However, though it was supposed to be a temporary tax measure, there’s now some uncertainty about exactly how temporary it is going to be in the long-run. The government has been making non-comital noises as of late, and amid the uncertainty many wealthy Spaniards have begun trying to find ways around paying it and trying to reduce their wealth tax bill overall.

READ ALSO: When will Spain’s millionaire tax be scrapped?

Donations

A lot of it comes down to ‘donations’ in order to make the money non-taxable or to reduce the taxable base on paper.

Spanish tax consultancy firms consulted by elEconomista.es report an increase in requests for help arranging ‘donations’ from parents to children or spouses in recent years, as well as the arranging inheritance agreements in the regions that allow deductions to offset the tax burden of the millionaire’s tax.

Donations are sometimes done through money and shares, but donating properties also seems to be a way of avoiding extra taxes, although property donations can work out more expensive due to the procedures to be followed and the taxes to be paid on property transactions in Spain.

The aim is to avoid paying the millionaire’s tax by splitting up the fortune, essentially because donations between family members is a way to reduce the level of wealth (on paper) and thus keep it below €3 million, the taxable base from which the millionaire’s tax is levied.

This trick is even more beneficial in regions where donations are subsidised, such as Madrid and the Balearic Islands, where inheritance agreements can be made, because any capital gain generated by the donation is not taxed.

READ ALSO: Inheritance tax in Spain – Should you pass your property on to your children or sell it to them?

Venture capital firms

Another method increasingly used by the wealthy seems to be setting up and putting money in venture capital or private equity firms.

According to Spain’s National Securities Market Commission, the creation of venture capital firms has grown by 38 percent since the government first announced the millionaire’s tax.

Siro Barro, partner in charge of tax law at Escalona de Fuentes, told El Economista that setting up venture capital firms are appealing because 60 percent of the investment made by creating a fund or equity can be exempt from both forms of tax in certain circumstances.

Tax experts expect the trend of creating and investing by the wealthiest taxpayers into private equity entities to continue to rise as long as the solidarity tax continues to exist, as with the donations loophole.

With the government yet to outline when this supposedly temporary tax will be scrapped (if at all), it seems these sorts of tricks, whether through donation or venture capital investment, are here to say.

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